In a bid to increase transparency and reduce mis-selling of insurance policies, the insurance regulatory body (IRDAI) may look at making it mandatory for insurance companies to disclose the commission paid on a policy. Additionally, insurance aggregators and agents should disclose the commission received on individual insurance policy documents.
Interestingly, the move hasn’t been initiated by the IRDAI but has been proposed by two committees formed by the regulator. IRDAI had recently formed eight committees, out of which the committee on Insurance Penetration
and Distribution has suggested making the disclosure of commission/rewards on individual policies mandatory.
The insurance regulatory body (IRDAI) is likely to take up the proposal in its board meeting scheduled for July 15.
People in the know have told CNBC-TV18 that the committees believe that the move will bring more transparency for potential policyholders, making it clear how much of what is being paid in premium and how much is commission.
The insurance regulator feels that a lot of insurance companies are paying higher than permissible commission/rewards and thus proper disclosures will address this concern and thus keep the commission paid by insurance companies to online aggregators and agents in check and within the permissible limit.
As per industry feedback, general insurance companies are permitted to pay a 15 percent commission and incentive/reward of up to 4 percent of the annual premium on health and motor insurance policies.
On fire insurance policies, general insurance companies are permitted to pay a 12 percent commission and incentive/reward of up to 3 percent. For life insurance companies, the permissible commission is three times the policy term. For a 5-year life insurance policy, the commission will be 15 percent (3 X 5 years), for a 7-year policy the commission will be 21 percent and for a 10-year policy, the commission will be 30 percent.
According to some sources, the proposal on strict disclosure on commission/rewards has found some resistance even before it can be taken up by the IRDAI board.
Standalone health insurance companies like Star Health Insurance along with the Life Insurance Corporation of India (LIC) have already expressed their reservation about the move. LIC has the most prominent agent network of 13 lakh agents involved in selling its policies.